Background

We can normally have a good idea, from trends in the AI and wording given to us ahead of the exam, which direction the Examiner will take the numbers in Requirement 1.  You can then be prepared and if the numbers follow the expectations you have something to discuss. If they don't follow the expected route, normally the Examiner will provide you with new information on the day to assist you with your discussion.

House Pride, is slightly different in that there are reasons why the numbers can go in either direction. This means you have to be ready to interpret the new information on the day of the exam.


Regional Housebuilders

These are some of the reasons why revenue for this division can increase or decrease. As well as the items listed, there could be other points the examiner brings into the exam e.g. new RH customer or a loss of a customer. He would have to bring this information into the exam to enable you to comment. In the absence of any new information, you need to choose the most likely reason for the movement from your list.

  • Housebuilding to remain strong in the North West

  • Government policy surrounding affordable housing. This could benefit Elevant and incentives are in place e.g. Stamp duty / affordable housing policy

  • General online sales growth assisting division

  • Shortage in retirement homes / Orko purchasing Dolphino

  • Branches open all year (more months)

  • Decline in branch sales / closure of branches during the year for a short period of time (fewer months open)

  • Wrights generated £0.8m in 2020 - economic downturn will impact commercial property market most

  • General economic downturn impacting sector (goes against the top bullet which is more specific to the industry)

  • A worsening of on-time deliveries to RH customers leading to an increase in refunding 5% of the value of the sales order

Building Contractors & Tradespeople

Make a similar list to our Regional Housebuilders list for the BCT division. Our best estimate is for revenue to increase in the real exam, but be prepared in case it decreases.

Your reasons for BCT revenue to increase could include:

  • No repeat of the "brief pause" in home improvements seen at the start of the economic downturn.
  • North West home improvements industry expected to stay strong
  • Full year of click & collect at Blackburn & Burnley (be cautious here as online cuts across both divisions, however as BCT are smaller businesses, our interpretation is they are more likely to use click & collect). 
  • A full year of refurbished branches (again our take is that a higher proportion of BCT are branch customers so this division may be more impacted by branch closures).

Reasons for BCT to decreases

  • Branches open for fewer months
  • It declined in 2020 -> may continue to, although we suspect 2020 will be a one off
  • Something new provided on the day of the exam.


Branch & Online

These are both Sales Channels rather than divisions, so the performance of the two divisions will be the main reason for movements in the sales channels. There is an intrinsic link e.g. the more months branches are closed, the more online sales should grow but closed branches could impact overall divisional performance too. You need to be aware of how divisions and sales channels are intrinsically linked.

Branch revenue will increase based on:

  • Number of months the branches are open for during the year
  • Refurbishment of Wigan, Bolton, and possibly Manchester - closing stores will reduce revenue, but normally after a refurbishment a branch's average revenue per month increases
  • 2020 refurbished branches open for a full year (increase in average revenue per branch)
  • Opening a new store (this is unlikely as the AI states store openings are on hold - the Examiner would need to make it very clear that a new store had been opened).
  • An increase in online outages forcing customers to the branch (unlikely to be so significant as to make a difference)

YOU MUST ENSURE that you discuss average revenue per branch per month as this is a key KPI. You can easily find that overall branch revenue increases and the KPI decreases. For instance branches could have been open for longer during the year meaning an increase in total branch sales, but the average per month has fallen.

Online revenue will increase based on:

  • General trend toward online sales
  • Introduction of more click & collect branches (2020 refurbished branches have facilities) - remember that click & collect are recorded as online sales
  • Branch closures for a period of time will force customers online


SALES MIX

All the above will impact the sales mix for RH v BCT and also for Branch v Online. When considering the sales mix, remember that the mix WILL and DOES impact overall gross profit margins. BCT is a higher margin division so a mix heading this way should increase overall gross profit margins.

A sales mix moving towards online should also increase overall gross profit margins. However, insufficient information is given to analyse - but the examiner makes reference to this point in the AI.

We provide more tips on our Facebook Group which you can access here


NEXT STEPS

1. Make sure you check back as we will be covering gross profit and COS next. 

2. Join our Facebook Group as there will be some content we make exclusive to our Facebook Group - it is free to join! We don't post all our top tips and hints online, after all we don't want everyone to know them!

3. Make sure you have practiced with some high quality mock examinations. Whether they are our mock exams or another tutor provider, it is important to ensure the mock exams are realistic. We are happy to provide you advice if you are unsure.

WE BELIEVE THE LACK OF CLEAR DIRECTION THE NUMBERS FOR 2021 ARE HEADING IN WILL MAKE REQUIREMENT 1 MORE DIFFICULT THAN LAST SUMMER FOR STUDENTS. THIS MEANS YOU MUST BE PREPARED FOR ALL OUTCOMES.

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